Price Your Product Right

A nickel may not seem like much. For small business owners, however, it can be the difference between profitability and bankruptcy court.

| 5/26/2008

Erin and Al Rosas say that Rosas Farm’s customers will pay a higher price for good nutritional value.[Photo: Jeffrey Camp]

One of the most important decisions for small business owners is determining the right price for their product or service. Too high, and the product sits on the shelf. Too low, and the income from selling it won’t cover the cost of producing it.

Finding the right price for Rosas Farms’ grass-fed, organically raised beef is tough because “you can’t compare grass-fed beef to conventional beef,” says Al Rosas, who with his wife Erin started the Marion County business in 1990. He adds, “We will never be able to compete with conventional beef because we don’t do the same things they do to achieve a 99-cent burger.”

Rosas says he doesn’t allow the market to set the price. Instead, the farm prices its grass-fed beef, bison, pork and chicken as “absolutely cheap as we can afford to let it be and still sell.” While admitting their profit margin is very tight — “even five, 10 cents a pound is a world of difference when I’m doing 250,000 pounds of chicken or 500,000 pounds of beef” — Rosas believes people will buy his meat if they understand the differences between conventional beef and grass-fed beef.

“Our concern is finding that value,” Rosas says. “Is it in dollars and cents? Or is it actually in the value of the nutritional end of it? We have to educate the consumer so the group looking for it is going to pay for it.”

Rosas’ views are in tune with the principles espoused by Cathy Hagan, area director for the University of North Florida Small Business Development Center, who says businesses have to take into account fixed costs, but have to bring something extra to the table to survive.

“There’s some perceived value that your customers have that they’re willing to pay for,” Hagan says. “Often, small businesses, particularly when they’re getting started, worry about pricing too high because it might not be competitive. But they need to justify why they deserve a premium, whether it’s quality, price, service or relationships. There is that perceived value they can create.”